How blockchain technology might help developing economies to increase financial inclusion — a closer look at
How blockchain technology might help developing economies to increase financial inclusion — a closer look at financial services in Ghana.
In modern times of rapid globalization and digitization, technological developments have now reached such proportions that the usage of cryptocurrencies is no new phenomenon. The technology behind blockchain opens the internet for financial services by replacing trust, a fundamental component of the financial system for centuries, with transparency integrated into a decentralized network. Thereby, blockchain bears the potential to help achieve the United Nations’ Sustainable Development Goals (SDG) by empowering the unbanked, predominantly women, reducing transaction fees as well as creating an alternative source of liquidity.
Only 57.7% of adults in Ghana in 2021 had a bank account. Unable to afford participation in the formal financial system, the poor find themselves paying the most for fundamental financial services. Moreover, there is a multiplier effect inherent with the economic participation of women that takes wide-ranging consequences respecting a number of SDGs.
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Financial inclusion may alleviate poverty, improve health and well-being, gender equality, take a positive effect on children’s education, and more. Access to affordable financial services thus becomes a catalyst for economic growth and opportunity. Simply put, there is a lot at stake here. Let’s dig into it.
West Africa’s economic powerhouse: Ghana
Sharing borders with the Ivory Coast, Burkina Faso and Togo, Ghana lies in the heart of West Africa. The population is about 32 million, and besides various tribal languages, English is one of the recognized national languages. Frequently seen as West Africa’s economic powerhouse, in 2020, the country’s purchasing power parity (gross domestic product per capita) was around $5,744 United States dollars. Until it was hit by a severe banking crisis spanning from 2017 to 2020, Ghana’s economic growth had been astounding — the epitome of what many countries in the region ought to achieve. Shaken by just another crisis, going by the name COVID-19, the economy is in the process of recovery.
Ghana’s wealthy remain concentrated in the south’s urban areas and lower-income households dispersed across the countryside, home to most of the population. As a result, banking services are largely located in urban areas. Despite that, a 2010 research concluded that physical access to banks is not the central barrier to banking but rather Know Your Customer (KYC) requirements that many of the unbanked are unable to fulfill. Also, 64% of the respondents stated inadequacy of income as being the prime reason for not having a bank account. Although this study may seem outdated, a new study from 2021 arrived at similar conclusions by pointing out that one of the main hardships of opening a bank account resides in the lack of financial resources.
Essential to the country’s financial services infrastructure is mobile money, which accompanies the everyday life of millions of Ghanaians — approximately 38.9% of the population in 2021 had registered a mobile money account. Mobile money, introduced in 2009, is a financial service that enables people to transfer money and handle payments without the need of having a bank account. All that is required to complete a transaction is a mobile phone capable of sending SMS.
Dependent on the network provider, mobile money allows account holders to access credit and other kinds of financial products. It has the added advantage that its KYC requirements are lax compared with that of banks. In most cases, one “only” needs proof of identity to open an account. Taken together, this may come as just another hindrance to financial inclusion (not everyone may have a phone or identification documents), but this is as low as the barrier gets. Two of its distinct disadvantages, however, are transaction and withdrawal fees. MTN, for example, charges for mobile money transfers up to 5%. Charges that may seem minor but build up over time.
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On Nov. 17, 2021, the Ghanaian government announced the enactment of an e-transaction levy of 1.75%, intending to fill up state coffers. Initially proposed to come to pass by February, the e-levy remains postponed due to fierce opposition. Yet it’s been asserted that irrespective of the electronic tax, most people will keep using mobile money.
Lastly, foreign remittances is a topic that cannot be overlooked when discussing the situation of financial services in Ghana. Receiving remittances accounts for a noticeable portion of the country’s GDP, as it does in several developing countries.
In 2018, Ghana was the second-largest recipient of remittances in West Africa after Nigeria. With more Ghanaians migrating…
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